Tax on NRI’s in the time of COVID- An analysis of the Judicial Outlook

Tax on NRI’s in the time of COVID- An analysis of the Judicial Outlook

This article is written by Aditi Tripathi, an LL.M student at National Law University, Delhi. In this article, the author will be analyzing the relevant provisions of the Income Tax Act and the judicial approach of various countries in this regard.


Due to the COVID-19 pandemic and the imposition of various restrictions on international flights, many Non- resident Indians had to stay back in India for the duration which would make them amenable to the Indian Income Tax Act provisions. In a recent case of Gaurav Baid v. Union of India[1], a writ petition was filed before the Supreme Court and the question arose, whether the NRI’s who were stranded in India due to COVID induced lockdown would be treated as tax residents for the purpose of Income Tax Act 1961? In this article, the author will be analyzing the relevant provisions of the Income Tax Act and the judicial approach of various countries in this regard.

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The taxation regime for Non-resident Indians has always been a subject of scrutiny under the provisions of the Income Tax Act. The question which has vexed the individuals is that, under what circumstances will the income be taxable in India? The income which has accrued or earned in India will be taxable under Indian laws. Therefore, income generated from any services rendered in India or salary received in India would be taxed under Indian laws. However, Income that is earned outside India cannot be taxed under Indian laws[2]. Hence, while determining the taxable income of NRI’s, it is pertinent to understand how the lawmakers have defined this term under the provisions of the Income Tax Act.

Definition of NRI under Income Tax Act

Non-Resident Indian has been defined as a person who is not a resident and includes a person who is not ordinarily a resident within the meaning of section 6 of the act. Hence, the definition of NRI will be interpreted according to the requirements stipulated under section 6 of the act. It states that “an individual is said to be a resident of India in any previous year, if he is in India that year for a period or periods amounting in all to one hundred and eighty two days or if he is India for a period of 60 days or more during the previous year and 365 days or more during the 4 years immediately preceding that year[3].

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In the instant case, the petition has been filed by UAE based NRI who was stranded in India due to government-imposed lockdown and could only return to UAE after spending more than 182 days in India during Financial year 2020-21. The petitioner submitted that his stay in India was involuntary and he should be treated as non -resident Indian for the purpose of taxation under Income Tax Act regardless of his duration of stay in India due to the pandemic[4].

The Supreme Court has directed the petitioner to make the representation before the Central Board of Direct Taxes (CBDT) and further directed the CBDT to take appropriate action within three weeks of the receipt of the order. Earlier, this issue has been raised by several non- resident Indians who had to stay in India on account of COVID-19, Subsequently, CBDT took cognizance of this matter and issued Circular No- 11 on May 8th, 2020 to clarify that the period from March 22, 2020 to March 21, 2020 would not be included in determining the residential status of an individual under Section 6 of the Income Tax Act.

Thereafter, a press note was also released by the Ministry of Finance clarifying that due to the extension of the lockdown in 2020-21, any period of stay in India until the resumption of international flights would be excluded for the purpose of determining the residential status of the stranded individuals. However, any such statement was not mentioned in the circular on this matter. Various exemptions and relaxations have been granted by many countries in this matter such as Australia has issued a clarification that any individual who is not a resident of Australia and had to temporarily stay back due to COVID restrictions would not be considered a tax resident.

Similar guidelines have been issued by the Irish revenue Commissioners who have excluded any unplanned stay due to COVID-19 for the purpose of taxation. Several judicial pronouncements have been discussed in this matter to further elucidate the issue[5].

Judicial Approach of various Countries

One of the prominent cases in which this issue of tax residency arose was Re Mackenzie[6], in which a women who was a resident of Australia, visited England with her mother and sister. Afterwards, she was adjudged to be of unsound mind and had to stay in England till her death. However, fifteen years before her death, an English Court had authorized the receiver of her estate to concur in the sale of a certain estate established in Australia, in which she owed half of the property. The proceeds of that sale were invested in the interest bearing war bonds as directed by the British Government.

Thereafter, the administrator of the estate requested the court to decide whether the deceased would be considered as the ordinary resident for the purpose of taxation in United Kingdom. The relevant provision in this regard is stated under section 47 of the Finance Act, 1915 under which the war bonds were issued;

The Treasury may, if they think fit (…) issue any securities which they have power to issue (…) with a condition that neither the capital nor interest thereof shall be liable to any taxation (…) so long as it is shown (…) that the securities are in the beneficial ownership of persons who are neither domiciled nor ordinarily resident in the United Kingdom (…)”[7]

It was argued on behalf of the deceased that any individual who visited a country voluntarily and was subsequently declared of unsound mind leading her to remain in that country without her will could not be considered as the ordinary resident. It was also contended that any prisoner of war brought in a country, would not become a resident of that country because of the lack of his own volition. Therefore, the capital or the interest on the bond could not be subjected to English taxes[8].

The court rejected this contention and opined that the deceased required the care and attention during the course of her life which made the residence of the deceased permanent in England. The court further held that if the residence was initially voluntarily, the fact that it subsequently became involuntary would not be taken against the acquisition of ordinary residence. It was also held that since the deceased was not the ordinary resident anywhere else during her fifty four years of life and a person could not be an ordinary resident nowhere. Thus, taking into account the circumstances of the case, she would be considered as the ordinary resident of England and liable to be taxed under English laws.[9]

Indian courts have followed another route in this regard and considered the “voluntariness” as the crucial factor in determining the tax residency of an individual. In the case of CIT v. Suresh Nanda[10], where the passport of a person was impounded by the authorities and he had to stay back in India, the court held that-

The Income Tax Act leaves the choice to the citizen to be in India and be treated as a resident for purposes of taxation or be not in India so as to avail the status of a non-resident. The simple test the muster of which is to be passed is the minimum prescribed period of presence in India in a particular financial year. It naturally follows that the option to be in India, or the period for which an Indian citizen desires to be here is a matter of his discretion. Conversely put, presence in India against the will or without the consent of the citizen, should not ordinarily be counted adverse to his chosen course or interest, particularly if it is brought about under compulsion or, to put it simply, involuntarily. There has to be, in the opinion of this Court, something to show that an individual intended or had the animus of residing in India for the minimum prescribed duration[11]

Similarly, in another case of Re Spek and Lawson[12], wherein a prisoner was transferred to Ontario, the court held that it would not be counted for the purpose of tax residence as she was taken to Ontario against her will. Therefore, every case of tax residency has to be decided taking into account the facts and circumstances of each case as was also mentioned in the case of CIT v. Suresh Nanda.

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It can be understood from the provisions of the Income Tax Act that any determination of the period of tax residency has to be decided objectively and as per the strict interpretation of the conditions laid down under section 6 of the Act. In this matter, the opinion of the Delhi High Court could be of considerable importance as it clearly imparts a subjective dimension by giving the latitude to the individuals to prove that their stay during the said financial year was involuntary. Though, the court has also put out a caveat that this should not be treated as a fixed rule and an assessee’s claim to extended stay being involuntary has to be decided as per the facts of the particular case[13]. Here, it remains to be seen, what steps the CBDT will take to grant relief to such non-resident Indians, albeit these cases could guide the Supreme Court in deciding this controversial aspect and in case CBDT does not grant appropriate relief, the higher judiciary may have to step in.



[1] Gaurav Baid v. Union of India, W.P. (C) No. 136/2021. (Order Dated 10.02.2021)

[2] What Will Be The Taxable Income In India For A Non-Resident? (

[3] Income Tax Act 1961, Section 6.

[4] Id.

[5] What Does The Supreme Court Ruling In Gaurav Baid v. Union Of India Mean For NRIs,

[6] Re Mackenzie, [1941] Ch. 69.

[7] Finance Act 1915, Section 47.

[8] Id.

[9] Id.

[10] CIT v. Suresh Nanda [2015] 375 ITR 172 (DEL)

[11] Id.

[12] (1983) 2DLR (4th) 672.

[13] Id.

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